Can Credit Card Companies Garnish My Wages?
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The short answer is yes – but with a large caveat. Creditors may only siphon off part of your paycheck if they have sued you and won. It takes a long time to reach this point, but that doesn’t necessarily mean it’s a rare occurrence. The best way to avoid a lawsuit is to keep up with your monthly payments. However, if you’re already struggling with debt and fear your creditors may take legal action against you, there are ways to help prevent wage garnishment.
When can credit card companies garnish my wages?
When you sign up for a credit card, you are agreeing to make monthly payments. Failing to do so means you have broken a legal contract, which is one of the reasons it’s so important to keep up with your debts.
If you find yourself significantly behind in payments, it’s possible that your creditors may decide to pursue legal action against you. If you receive a court summons or other documents regarding a lawsuit, don't ignore them – and hire an attorney. If you fail to appear in court, the judge may automatically rule against you – meaning you’ll owe the amount the creditor demanded and the court can decide whether the money will come from your paycheck.
If you go to court and lose, you will be issued a writ of garnishment, whereby you may lose control of up to 25% of your wages. Social security, disability and other federally provided forms of income cannot be garnished. Although the Debt Collection Improvement Act of 1996 set the 25% ceiling, there are also state laws to take into consideration. Depending on where you live, creditors may also seize your personal assets. In order to identify your risks in greater detail, contact your state labor office.
When the percentage that your wages will be garnished has been settled, the court will inform your employer. Your employer cannot terminate you for having a single wage garnishment on your record. However, these protections don’t apply if your wages are being garnished two or more times, either consecutively or at the same time from different creditors.
What can I do to prevent a lawsuit and wage garnishment?
Again, the best way to prevent a lawsuit, wage garnishment or other negative impacts from your debt is to keep up with your payments as they are due. However, if your debts are out of control and you find yourself unable to pay, you can try to negotiate before the wage garnishment process begins.
If your debt is mounting due to excessive late fees and high interest rates, talk to your creditors to find out who owns your debt and see if you can reach a settlement. Major credit card companies often sell delinquent debt to collection agencies for pennies on every dollar you owe. If this happens, you have a good chance of negotiating your debt down with one of these three methods because the collection agency is just trying to break even:
- Set up a payment plan. Creditors and collection agencies may be willing to work with you to set up a payment plan that is more manageable given your current financial circumstances. Explain your situation to your creditors and see if they’d be willing to reduce your monthly payments or lower your interest rate.
- Negotiate a lump-sum payment that is smaller than your debt. If your debt has been sent to collections, the agency will often accept a single payment that is smaller than what you originally owed because they know that getting some money back is better than nothing.
- Consider debt consolidation. Consolidation is the process of taking out a new loan and using it to pay down the balance of your existing loans so that you can focus on a single debt, hopefully with a lower interest rate. However, consolidation typically requires that your credit scores be in good standing. If you have a poor credit history, it may be difficult to qualify for favorable terms or to obtain a new loan at all.
If you fear you could face wage garnishment, the important thing is to reach out to your creditors sooner rather than later. It’s better to explain the situation and ask for help than to let your debt continue to mount as it goes unpaid.